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Equity-oriented hybrid funds have at least 65% in equities

They are classified as equity funds for taxation purposes.

I am a first-time mutual fund investor and can spare around 5,000 every month. I do not have any particular goal, but want to build a robust portfolio over the long term. Please advise.

—Rashmi Jha

Since you are not working towards a specific financial goal in a set time frame, you can consider choosing from a couple of options. If you like to invest in a conservative manner, you can go with a simple two-fund portfolio—2,500 in Franklin India Blue chip (a large-cap fund) and 2,500 in DSP Blackrock Balanced.

If you’d like to take some risk, you can add a small- and mid-cap fund to your portfolio. In that case, you can invest 1,500 in Franklin India Blue chip, 1,500 in Religare Mid-cap fund and the remaining in DSP Blackrock Balanced fund.

The advantage of the second approach is that you will get a wider exposure to the market and experience the behaviour of all the segments of the market.

What is the difference between HDFC Balanced and HDFC Prudence funds?

—Nath

Both the funds belong to the equity-oriented hybrid funds category. Their mandate allows them to invest up to 35% of their portfolio in debt and/or cash and the remaining in the domestic stock market. Although they invest in the debt market as well, since at least 65% of the portfolio is always invested in the equity market, they are classified as equity funds for taxation purposes and enjoy nil tax treatment for long-term gains.

The two funds are from the same fund house, but have different fund managers. While Chirag Setalvad manages HDFC Balanced, Prashant Jain manages HDFC Prudence. Historically, HDFC Balanced has been the more conservative of the two—it has had less exposure to equity at any point of time than Prudence and within the equity segment has tended towards more cautious stock picks with a reliance on the large-cap sector. However, in all fairness, Prudence also delivered higher returns commensurated with the risks undertaken in the portfolio over the last 10 years that both the funds have been in existence.

Recently, though, the Balanced fund has started increasing its equity allocation and exposure to the mid-cap equity segment, making it look more like the Prudence fund. It remains to be seen whether such a move will pay off for the fund and its investors. With its proven track record over the long term, the Prudence fund may be the better choice for investors at present.

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